DESCRIPTION: This study will examine the choices nursing homes make in resource allocation and the resulting impacts on quality of care. The study will examine observable environmental quality and unobservable clinical quality. The study will test a hypothesis that nursing homes in more competitive and financially constrained environments allocate resources preferentially to environmental quality, away from clinical quality. The study will test a secondary hypothesis that: nursing homes respond to competitive and financially constrained environments by decreasing total resources per patient day, shifting resources from clinical to environmental services, shifting resources into competing outpatient services such as home care and adult day care (diversifying), decreasing expenditures, labor intensity and skill of clinical personnel, employing more temporary labor and/or outsourcing specific activities, and decreasing clinical quality as measured by risk-adjusted outcomes. The final hypothesis is that these factors will be positively correlated with a deterioration in clinical quality. The project also plans to examine the issue of nursing home market definitions and boundaries and to test several measures of competition. The study is premised on the notion that there is increasing competition and financial pressures for nursing homes. In part this stems from a decline in nursing home occupancy as more assisted living facilities are developed and the use of home care has increased. The cost containment efforts of Medicare and Medicaid have placed greater limits on nursing home reimbursement. These factors in the market are expected to have direct effects on the efficiency and quality of care, both observable and unobservable.